New Estimates Confirm that Three-quarters of
a Million Pennsylvania Workers Would See Higher Pay With a $7.15 Per Hour Minimum Wage

By Mark Price and
Stephen Herzenberg

Pennsylvania’s General Assembly is currently considering whether to increase the Commonwealth’s hourly minimum wage to $7.15 by January 2007. With wage data for 2005 now available, this Briefing Paper updates Keystone Research Center’s (KRC’s) estimates of the number of workers who would benefit from such an increase. KRC also compares its estimates with those released by the Pennsylvania Department of Labor and Industry (PDL&I) and the Commonwealth Foundation (CF).

Findings

• KRC estimates that 427,000 Pennsylvania workers would benefit directly from an increase in the state’s minimum hourly wage from the current $5.15 to $7.15 by January 2007. This estimate is lower than KRC’s previous estimate of 510,000 for two reasons: the new estimate relies on 2005 data and, in addition, it projects a small decline in the number of affected workers between 2005 and 2007.
• PDL&I projects that 423,000 workers would benefit directly from a minimum wage increase to $7.15, very similar to the KRC estimate. The CF estimate is 25 percent lower, at 320,000.
  
  All of these estimates rely on the same official government data source, the Current Population Survey (CPS).
• The differences in numbers reported result primarily from two choices.
  • The first choice involves which workers to include in the sample. CF and KRC both include a relatively small group of workers that PDL&I excludes.
  • The second choice relates to the approach each group takes to project the decline in the number of workers earning $5.15 to $7.14 that will take place from 2005 to January 2007. PDL&I does not project to 2007 but instead reports 2005 numbers. KRC and CF use different methods to project to 2007. For reasons explained in the Technical Appendix, CF’s method leads to an underestimate of the number of affected workers. As a result, the number of directly affected workers is likely to be much closer to the KRC and PDL&I estimates of roughly 425,000 than the CF figure of 320,000.
• KRC estimates that another 327,000 workers whose wages fall between $7.15 and $8.14 per hour on January 1, 2007 — i.e., within a dollar of the new minimum wage — would benefit indirectly from a minimum wage hike to $7.15. While the new minimum wage will not mandate raises for these workers, research shows they are likely to receive them as their employers seek to retain a higher-quality workforce than available right at the new minimum wage.
• While no other organization has estimated the number of indirectly affected workers, the fact that workers above $7.15 would also see higher wages is not a subject of disagreement. Opponents of a minimum wage increase acknowledge that its impact will go beyond workers earning $7.15 per hour, with businesses that pay $8 to $9 an hour also adjusting their pay scales.

The bottom line is that the differences in the estimates of the impact of a minimum wage increase are modest. These differences would likely shrink further if CF were to update its estimate of directly affected workers based on full-year 2005 data and to take into account the downward bias in its methodology for projecting the numbers to 2007.

Conclusion

Pennsylvania’s minimum wage debate need no longer get lost in a fog of numbers.

Hundreds of thousands of workers would benefit from an increase in the minimum hourly wage to $7.15 KRC estimates over three-quarters of a million counting the indirectly affected. Some would receive increases of as much as $4,000 annually. Policymakers should, therefore, shift their focus to the larger policy question of whether giving hundreds of thousands of Pennsylvania’s lowest-wage workers higher pay is a good idea.

A Technical Appendix details KRC’s new estimates and compares them with those of CF and PDL&I.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center